The breakout of the price channel on the 6th looked programmed. But it was enough to bring in the buy-the-dip retail crowd in and force some short covering.

What risk-insensitive investor would push the markets higher this time… maybe Goldman Sachs corporate buyback desk… maybe.

Buybacks are running 2x to 3x last years rate this last week soaking in supply. A little push on the 6th pushed the markets to a technical buy level and stopped the correction in small caps and the pullback in the SP500 index.

I have not seen daily charts this choppy in a long time. Much of the “up” is overnight in the futures markets.

Let’s look at both broad US indexes together – the TSP C fund (SP500 plotted in black) and the TSP S fund (non-sp500 in red).

I placed red ovals around the breakout on the 6th. The vertical rally happened overnight in the futures market with some follow-through this morning. Then we had a nice flat top all day.

The media attaches COVID to the moves, but it looks more technical in nature and the COVID story amplified the moves especially for the small caps.

At over 3 times its historical mean valuation, the SP500 will become more unstable in the near future as the central bank slows printing and moves closer to raising interest rates.

If you have not noticed shorter duration Treasury yields have been rising even as the Fed sits at zero rates purchasing bonds and mortgages with printed money. Long duration Treasuries are falling slightly.

My view is the short duration market is telling the central banks inflation is an issue, you need to raise interest rates last month. The long duration Treasury market is saying, when you raise rates we will be crushed in price (investors selling) and financial deflation is to be expected (across the board).

These things do take time. Are you ready?

Invest smart,

Michael Bond

TSP Smart & Vanguard Smart Investor serves serious and reluctant investors

Become a member for our ongoing market commentary

Categories: TSP Charts